Regulations have been tightened for personal consumption loans to prevent lending from being abused in the housing market as a tool for property speculators.
The banking regulatory unit of the People’s Bank of China, China’s central bank, released a series of circulars in the past week that banks need to examine the use of personal consumption loans above 200,000 yuan ($30,400) with residential properties as mortgages.
Shenzhen banking regulatory authorities have required banks to shorten terms for personal loans from previously up to 20 years to no more than five years, while Guangzhou has stipulated that personal loans shall not exceed one million yuan, and the terms shall be no longer than 10 years.
“The move to tighten personal loans is obviously to prevent borrowers from applying for consumption loans while using it to speculate in residential properties, after banks tightened lending to home loan applicants amid nationwide efforts to cool down the residential property market,” said Wang Jiejing, a credit specialist with Bank of Shanghai.
The move is to reduce risk for banks, and also goes in alignment with the government’s long-term mechanism to encourage stable and healthy development of the property market, he said.
“Tightening lending is one of the most powerful measures to cool down overheating in the residential market”, said Yan Yuejin, research director at E-house China R&D Institute.
A recent research by the E-house China R&D Institute said that about 300 billion yuan, or 30 percent of the 1 trillion yuan personal consumption loans, are likely to be injected into the property market.
Banks across China have been scrutinizing applications for home loans and increased lending ratings for home loans by up to 10 percent above the benchmark rate since the beginning of the year.
In Beijing, several banks have increased their rates for home loans by between 5 percent and 10 percent, said a circular by the operation management unit of the central bank on Sept 19.
“Banks’ rate hikes for home loans are ‘voluntarily’, which reflects the trend after policies were tightened against speculation in the housing market, and is supported and encouraged by the authorities”, the circular said.
Banks in Shanghai, Shenzhen, Nanjing and Guangzhou have also increased home loan rates.
In Zhengzhou, capital of Henan province, which has seen sharp new home price growth in the past 18 months, banks have increased home loan rates by up to 30 percent above the benchmark rate.